Accounting Firm Contracted Risk Management Studies

Since 2001, the occurrence of numerous finance fraud cases that happened at home or abroad, making the public accounting firms tend to suffer lawsuit easily. How to guard against and control audit risk by adopting valid means, reduce the loss that the risk brings to a minimum level have become an urgent matter for accountants. As the principal risk that the public accounting firms face, engagement risk decides the control quality of risks hereafter directly. Therefore, if the public accountants firms want to bring the risk management into effect, he ought to implement the engagement risk management first.Risk management theories get a quicker development since they were introduced to our country, but currently space for further research of risk management is still existed. Engagement risk management is even such. Being the source of risk control, engagement risk management is showing its importance in theory and necessity in practice all the time. This text is in virtue of such a chance to discuss.The whole text is totally divided into five parts: The first part is the importance of engagement risk management which is educed from the case of Kelon and Deloitte; The second part aims to find out the basic theories about engagement risk, including the meaning, the cause of its existence and the factors which compose the engagement risk, this part firstly define the engagement risk from the meaning of risk, then explain the cause of its existence from the aspects of economics theories and law theories, at last, discuss the factors which compose engagement risk. The latter three parts elaborate the identification, assessment and treatment of engagement risk according to risk management theories. In the identification part, I state the contents, methods and its use for engagement risk identification, furthermore, I identify the engagement risk of the certain case; In the assessment part, text mainly focus on the category of assessment methods, and the use of evaluating the main risk factors of engagement risk, then select appropriate methods to appraise the risk of Kelon itself, CPAs' risk and lawsuit risk qualitatively and quantitatively; In the response part of the risk, I bring forward four kinds of methods to deal with the engagement risk, namely avoidance, reduction, transferring or sharing , accepting the risk, also combine the case to point out the problems and solution for Deloitte's engagement risk management.This text thinks that: engagement risk comes into being in the process of auditing business acceptance, and once the engagement behavior occurs, it will also bring latter risks, including the material misstatement risk and lawsuit risk. The incomplete economics theories and incomplete contract theories are the essential cause of engagement risk, however, the client's characteristics, the accountants characteristics, the competition of auditing market are the common cause of engagement risk. Clients' risk, CPAs' risk and lawsuit risk constitute the main risk factors of engagement risk, by evaluating each of them; we can judge the size and importance of risk factor. Facing the different importance of risk factors, the public accounting firms should adopt different treatments.